IB & JC A Level Economics Definitions You Should Know By Heart

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There’s no denying that JC A Level Economics and IB Economics are on a whole new level of difficulty. Since you don’t have a strong foundation on the subject during your previous academic years, being bombarded with jargon-heavy information can truly feel overwhelming.

You also have to familiarise yourself with several IB and JC A Level Economics definitions to give correct analyses of various economic problems. After all, economics is a social science. You can’t just get away with layman associations with common terms like demand and supply and call it a day.

If you are not fully precise, you run the risk of providing the wrong graph and weak conclusions. 

And more importantly, learning IB and JC A Level Economics definitions like the back of your hand can help you ace your examinations. They are needed for both A Level and IB Economics essays as well as case studies.

To get started, let’s look at this complete set of economics definitions you should be familiar with below:

Examples of IB & JC A Level Economics Definitions

One of the goals of The Economics Tutor is to help students truly understand economics definitions for both the JC A Levels and the IB programme. So, we have put together a library of key definitions that all economics students should learn.

Where it only applies to JC A Level students or where it only applies to IB students, we highlight that accordingly.

Moreover, when you sign up for our classes, you can access the definitions bank which includes the following:

Below is a sample of both Microeconomics and Macroeconomics definitions. When you become a student of The Economics Tutor’s economics tuition programme, you will receive the full set of definitions for all topics. Those who wish to only purchase our study guides and model essays publications as well as digital resources such as the Definitions Bank, please click here.

Let’s look at the key definitions in microeconomics and macroeconomics:


Economic TermDefinition
ScarcityA situation faced by all economies where there are unlimited wants, but limited resources to fulfil these wants.
Free MarketWhere the market forces of supply and demand determine the allocation of resources, with no government intervention.
DemandThe quantities of a good or service that consumers are willing and able to consume at various prices over a period of time.
Law of DemandThere is an inverse relationship between price and quantity demanded, ceteris paribus
SupplyThe quantities of a good or service that firms are willing and able to supply at various prices over a period of time. 
Consumer SurplusThe difference between the maximum price that consumers are willing and able to pay for a good or service, and the actual amount that is paid.
Producer SurplusThe difference between the minimum price that producers are willing and able to receive for a good or service, and the actual amount that they receive.
Competitive SupplyWhen the same scarce resources are used for the production of two goods, such that the resources used for the production of a unit of one good cannot be used to produce a unit of another. 
Joint SupplyGoods that are produced together from the same resource; an increase in quantity supplied of one causes an increase in the supply of the other.
Derived DemandWhen a good (FOP) is needed in the production of another.
SubstitutesGoods that are used as alternatives by consumers to satisfy the same want or need, XED value is positive.
ComplementsGoods that are jointly used by consumers to satisfy the same want or need, XED value is negative.
Price MechanismInteraction of market forces of supply and demand to establish a market equilibrium price and quantity.
Market EquilibriumWhen quantity supplied equals quantity demanded such that there is no tendency for quantity or price to change.
Price Elasticity of Demand (PED)A measure of the degree of responsiveness of the quantity demanded of a good to changes in the price of the good, ceteris paribus.
Cross Price Elasticity of Demand (XED)A measure of the degree of responsiveness of the demand of a good to changes in the price of another related good, ceteris paribus.
Income Elasticity of Demand (YED)A measure of the degree of responsiveness of the demand for a good to changes in consumer income, ceteris paribus.
Price Elasticity of Supply (PES)A measure of the degree of responsiveness of the quantity supplied of a good to changes in the price of the good, ceteris paribus.
Indirect TaxA levy imposed by the government on each unit of good produced by firms. The tax burden may be wholly or partially passed on to consumers in the form of higher prices.
Specific TaxTaxes are calculated as a fixed amount of levy on each unit of good sold. 
Ad valorem TaxTaxes are calculated as a fixed percentage of the price of the good or service.
Tax IncidenceThe amount of tax burden borne by consumers or producers.
Indirect SubsidyA payment made by the government to firms, with the aim of offsetting costs of production of firms and increasing the supply of a good or service by firms.
Price CeilingA legally-established maximum price set by the government that is usually set below the market equilibrium price, usually with the aim of making goods such as necessities more affordable to lower income groups, e.g. food price controls and rent controls.
Non-Price Rationing MechanismsWhen price no longer fulfils the signalling, incentive and rationing function, and means other than price are used to distribute the goods to buyers, like waiting lines using a first-come-first-served basis, or coupon distribution system.
Black or Parallel or Underground MarketsA market where (rationed or other) goods are resold illegally at a higher and often exorbitant price to consumers who were originally willing but unable to obtain the good or service.


Economic TermDefinition
GDPThe total market value of all final goods and services produced in a given time period by factors of production within the geographical boundaries of a country.
GNITotal income earned by factors of production owned by residents of a country regardless of geographical location from which interest/profits/wages/rent are earned
Real(Real) refers to the value being adjusted for inflation by referencing it to chosen base year prices.
Nominal(Nominal) refers to the value being taken at current prices, unadjusted for inflation.
GDP DeflatorA function measuring the current year’s prices relative to a given base year; calculated using the formula:
GDP Deflator = ( Nominal GDP/ Real GDP) * 100
HDIAn index comprising a value determined by several indicators acting as key dimensions of human development; HDI is measured on a scale from 0 (lowest) to 1 (highest), and HDI values are used for inter-country comparison.
It comprises Real GNI per capita, Literary Rates (Mean and Expected Years of Schooling) and Life Expectancy at birth.
Business CycleSituations where there are fluctuations in real GDP over a given period of time, consisting of economic booms and busts.
RecessionA situation where there are two consecutive quarters of negative growth in real GDP
Aggregate DemandTotal value of spending on domestic production of goods and services by the government, firms and households in a given time period; it is the sum of (C) + (G) + (I) + (X-M).
(C): Total consumption expenditure on domestically produced goods and services to satisfy consumer needs or wants.
(G): Total government spending on goods and services.
(I): Total spending by firms on capital goods like production plants and machinery, inputs like raw materials and goods in the process of production, as well as unsold goods.
(X-M): Net export expenditure or the net difference between export revenue received by the domestic economy, and import expenditure paid to foreign economies.
Aggregate SupplyTotal amount of goods and services produced by an economy at different price levels over a period of time.
Short Run (Macro)Refers to the time period in which the cost of production does not change in response to price changes.
Long Run (Macro)Refers to the time period in which the price of all resources is flexible and will change to reflect any price changes.
Full Employment Output (Yf)A situation in which the level of unemployment in a country is equal to the natural rate of unemployment.
Potential OutputThe level of output that an economy is capable of producing if all resources are fully and efficiently utilised, at a given level of technology and in a given time period; at this level of output, there exists no deflationary or inflationary gap. 
Equilibrium National IncomeA point at which an economy operates, where there exists no tendency towards an expansion or contraction of national income.
Inflationary GapA point at which an economy’s actual output is greater than its full employment input.
Deflationary GapA point at which an economy’s actual output is less than its full employment output.
Circular Flow of IncomeA model which depicts how money, as well as goods and services, flow through the economy between households and firms. The model also accounts for the existence of three other economic agents – the government, foreign markets, and banks. There is thus an interdependence between these five economic decision-makers interacting and making choices in an economy.
WithdrawalsThe portion of income not spent on domestically produced goods and services and are outflows from the circular flow.
InjectionsSpending on goods and services other than domestic consumption. Consists of government spending, investments and Export revenue which results in inflows into the circular flow.
Purchasing Power Parity (PPP) Exchange RateAn exchange rate between currencies such that buying power of both currencies in their respective countries is made equal for a more accurate cross-country comparison that accounts for Cost of Living differences.
= Amount of Currency A needed to buy Z  in Country A /Amount of Currency B needed to buy Z in Country B
Z = Representative basket of goods & services
Consumer Price Index (CPI)An index that measures the changes in prices of a basket of goods and services consumed by the average household.
InflationSustained increase in the General Price Level (GPL) of an economy over a given time period.
DeflationSustained decrease in the General Price Level (GPL) of an economy over a given time period.
DisinflationA decrease in the rate of inflation over a given time period.
StagflationA situation in which unemployment and inflation increase simultaneously.
Demand-Pull InflationInflation that occurs when the aggregate demand of an economy is increasing near of at full-employment.
Cost-push InflationInflation that occurs when the aggregate supply of an economy is falling due to increases in unit costs of production not caused by excessive aggregate demand.
Wage-push InflationWhen there is an increase in wages more than proportionately to the accompanying rise in productivity, unit costs of production rise, causing an increase in the GPL; a form of cost-push inflation.
Imported InflationA form of cost-push inflation where increases in the price of imports result in an increase in the unit costs of production, putting upward pressure on the economy’s GPL.
UnemploymentIndividuals of 1) working age who are 2) willing and able to work and 3) actively seeking employment, but who are without a job. 
UnderemploymentWhen people of working age either 1) work part-time jobs when they rather work full-time or 2) are employed in jobs which do not fully utilise their level of skill and education. 
Labour ForceRefers to the group of individuals in the population who are of working age and willing and able to work. 
Claimant Unemployment (For IB only)A measure of all individuals who receive unemployment benefits.
Standardised Unemployment(For IB only)A measure of all individuals who are of working age, available to start work within two weeks and who are actively seeking employment, but are currently without work.
Cyclical / Demand Deficient UnemploymentOccurs during the downturn of a business cycle, caused by a reduction in aggregate demand in an economy (demand-deficient).
Structural UnemploymentOccurs when there is a mismatch between the labour skills in demand by employers, and the skills which the workers possess and supply.
Frictional UnemploymentOccurs when workers are in between two jobs, are in the process of searching for a new job, or waiting to begin a new appointment.
Seasonal UnemploymentOccurs when demand for certain types of labour fluctuates during different periods of the year, due to changes in consumer needs.
Low-Income InequalityWhere there is a “fair” distribution of income amongst a population, which may be considered as having a Gini Coefficient of below 0.4.
Lorenz Curve(For IB only)A graphical representation of the proportion of national income earned by a particular percentage of the population in an economy. The Lorenz Curve thus illustrates the level of equality in income distribution that exists in an economy.
Gini CoefficientA measure of income inequality in a country, ranked on a scale from 0 to 1, where 0 corresponds to perfect income equality while 1 corresponds with perfect income inequality.
Poverty (For IB only)Refers to a situation in which the basic/minimum consumption needs of individuals are not satisfied.
Absolute Poverty(For IB only)A situation in which individuals live below a particular income level deemed necessary to meet their basic needs.
Relative Poverty(For IB only)A situation in which the individual lives below the prevailing standard of living typical in their society.
DebtAmount of money owed by individuals or organisations after taking out loans/borrowing in the past.
Direct Tax(e.g. personal income taxes, corporate taxes)A levy or charge that has to be paid to the government for which the incidence cannot be passed on, and the tax burden is wholly shouldered by the individual, household or firm.
Progressive TaxationA system imposed such that higher income earners pay a larger percentage/fraction of their income in taxes compared to lower income earners.
Proportional TaxationA system imposed such that all income earners pay the same percentage/fraction of their income in taxes.
Regressive TaxationA system imposed such that lower income earners pay a larger percentage/fraction of their income in taxes compared to higher income earners.
Economic GrowthAn increase in Real Gross Domestic Product (GDP) over a period of time.
ActualEconomic Growth% change in RGDP over a given time period usually over a year.
Potential OutputThe full employment output produced by an economy when operating at the given level of technology with resources being fully and efficiently utilised.
Potential Economic GrowthAn increase in the economy’s capacity to produce (full employment output) when operating at the given level of technology with resources being fully and efficiently utilised; the level of potential output is increased.
Sustained & non-Inflationary Economic GrowthEconomic Growth that is continuous over time and without incurring high inflation rates
Sustainable Economic GrowthIncludes Sustained Economic Growth and meeting the needs of the present generation without causing a decline in the SOL for future generations
Inclusive Economic GrowthEconomic Growth that is broad-based, with the majority enjoying higher incomes and improved SOL.
Foreign Direct Investments (FDI)Long-term investments in physical capital (machinery, production plants) by foreign multinational corporations in a country.

Aside from this set of IB and JC A Level Economics definitions, students can also take advantage of our other blog posts to help them excel in their economics classes. You can learn effective tips on how to write economics essays and how to study economics, to name a few.

3 Mistakes to Avoid When Learning IB and JC A Level Economics Definitions

Remembering the economics definitions is quite hard, much less understanding them.

Mistake # 1: Learning Too Many Economics Definitions All At Once

We understand that you sometimes feel the need to learn more economics definitions than you can take. In an attempt to rush through the learning process, you don’t pay attention to the things you learned the day before. You move on to the next definition without even trying to fully understand what you just read. 

So, what’s wrong with this method?

To help you understand why it can do more harm than good, let’s discuss how your memory works. According to the Forgetting Curve discovered by German psychologist Herman Ebbinghaus, you are more likely to forget everything you’ve learned if you don’t reinforce or review your learning!

For instance, you leave your economics class with your head full of new terms, concepts and theories. Later on, when you’re back at home doing the dishes, you discover that you can barely remember anything from the lecture. 

This is why he proposed a method called spaced learning. The key to truly remembering IB and A Level Economics definitions is to space out your review sessions to halt the Forgetting Curve. 

You can use paper or digital flashcards and other fun ways that can help you retain more information in the long run. This is why we highly recommend that you avoid cramming at all costs! Many students use our definitions bank for their learning and revisions.

Mistake # 2: Not Seeking To Appreciate What You Read

One of the biggest mistakes that economics learners make is they just study for the sake of passing the exams. There is nothing wrong with that, per se. However, you’d do yourself a big favour if you try to appreciate these terms and understand how they relate to the world you’re living in.

That way, you can think outside of the box and truly be familiar with those definitions. What’s more, The Economics Tutor is here to help you catch up on current economic affairs through real-world examples!

Mistake # 3: Going Solo 

This isn’t to say that studying IB and A Level Economics definitions on your own is bad. Besides, there are students who prefer to study quietly in their own spaces where there are minimal distractions.

But did you know that studying in a group setting is extremely helpful? Having people you can bounce ideas off of can teach you a lot about the material you’re trying to get familiar with.

This can be your peers, professors or the best economics tutor that will teach you learning strategies to master economics definitions. Just always remember that you can always ask for help. It is only wise of you to do so! There’s no shame in that!

Final Thoughts

Now that you’ve seen examples of IB and A Level Economics definitions, you might be feeling a bit scared. But there’s nothing to be afraid of! The Economics Tutor is here to guide you through the rigorous learning journey to reap the benefits of learning economics.

Aside from definitions, you will have access to useful and comprehensive resources when you sign up for our classes. To view samples of our other resources, check out our Economics Videos, Economics Notes, Infographics & Mindmaps, A Level & IB Economics Real World Examples and A Level & IB Economics Model Essays. What are you waiting for? Join our classes today and ace your economics!

About The Economics Tutor

Founded by Kelvin Hong in 1998, The Economics Tutor is one of the leading economics tuition in Singapore. We provide a comprehensive program to guide students in understanding complex economic concepts and applying them through case study analyses, essay writing and discussion of real world events.

For 24 years, the way we teach JC Economics Tuition (A Level Economics Tuition) and IB Economics Tuition classes helped learners appreciate economics and everything it entails on a much larger scale. We take things step-by-step, implement effective techniques in memorising frameworks and give every student the chance to nurture their ideas. 

We don’t just solely focus on helping you get stellar grades and perfect scores. We make sure that we also hone the critical thinking skills and investment / business decisions you can use outside the four walls of your classroom.

Looking for a fun, engaging and probably the best economics tutor in Singapore? Look no further—check out our extensive and high quality economics resources on the website such as our IB and A Level Economics Publication. Click here to order.

Book your lesson today and master the nuances of economics in our next class!

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